Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs650
Current market price: Rs544
No change in view
Result highlights
- At Rs70 crore the Q4FY2006 net profit (stand-alone) of Jaiprakash Associates Ltd (JAL) is less than our expectation of Rs81 crore net profit. The net profit is lower than expected primarily due to a drop in the margins of the construction division.
- The cement revenues grew strongly by 23% year on year (yoy) to Rs413 crore, driven by a volume growth of 17% during the quarter. The earnings before interest and tax (EBIT) margin of the cement division improved by 740 basis points to 18.4% during the quarter, driven by a 5% improvement in the cement realisations. Consequently the earnings before interest, depreciation, tax and amortisation (EBIDTA) per tonne for the cement division surged by 31% to Rs545.
- In Q4FY2006 the margins of the construction division fell by 920 basis points to 19.5% as it executed lower-margin orders during the quarter.
- With the drop in the margins of the construction business, the overall operating profit margin (OPM) of JAL dipped by 556 basis points to 18%. As a result the operating profit for the quarter declined by 9% to Rs154 crore.
- During the quarter the other income of the company grew by 20% on account of the funds recently mobilised by the company through a 165-million-euro foreign currency convertible bond (FCCB) issue. As a result, the pre-exceptional net profit for the quarter grew by 21%. The reported net jumped by 150%, as last year there was an extraordinary expense because of a one-time guarantee money paid to raise non-convertible debentures (NCDs) and term loans.